Aug 4 -- The Energy Policy Act of 2005 directed the Secretary of Energy to develop procedures for the acquisition of petroleum products for the Strategic Petroleum Reserve (“SPR”). Pursuant to that direction, the Department of Energy (“DOE” or the “Department”) promulgated the Procedures for Acquisition of Petroleum for the Strategic Petroleum Reserve. Over the intervening 16 years, the existing regulations have become outdated due to changes in statutory authority, agency practice, and market dynamics. In this notice of proposed rulemaking (“NOPR”), DOE proposes to amend the procedures for the acquisition of petroleum products for the SPR to: more closely align the regulatory language with the applicable statutory language; remove outdated procedures for acquisition under the royalty-in-kind program; add procedures for acquisition by exchange to better reflect petroleum product acquisition operations as conducted by the Office of Petroleum Reserves; and increase the Department's flexibility in structuring acquisitions. DOE will accept comments, data, and information regarding this NOPR no later than September 6, 2022.
The proposed rule would revise 10 CFR part 626 in several respects. First, the proposed rule would update language throughout part 626 to more closely align with the statutory language found in Section 160 of EPCA. This includes updating the definitions for “DOE”, “Exchange”, and “Strategic Petroleum Reserve”, while adding new definitions for “Premium”, “Requestor”, and “Solicitation”. The definition pertaining to “DOI” would also be struck. These changes would provide more clarity and maintain continuity throughout the part while supporting other proposed changes.
Second, because Congress repealed DOE's authority for it in 2013, all references to the royalty-in-kind program would be removed. This includes removal of the procedures for acquisition under the royalty-in-kind program currently at 10 CFR 626.7.
Third, the proposed rule would codify procedures for the exchange of petroleum products at a revised 10 CFR 626.7, as well as add references to “exchange” throughout part 626, as appropriate. These proposed changes are intended to reflect current operational practices of the SPR. Since 1996, in accordance with statutory authority in Sections 159 and 160 of EPCA, DOE has conducted over a dozen emergency exchanges with private industry. In these emergency exchanges, upon request from refiners and verification of the request by DOE, the SPR provides emergency barrels of petroleum product to refiners; in return, the requesting refiners later provide the SPR the original number of barrels plus extra barrels called a “premium.” In addition to the emergency exchanges by request, since 2000, DOE has twice utilized the exchange authority to conduct solicitations for exchange, whereby the general public may bid to contract to accept barrels of SPR petroleum products in the present and return those barrels plus a premium in the future. DOE is proposing to codify these long-standing procedures into the acquisition regulations.
Fourth, the proposed rule would amend 10 CFR 626.5 and 626.6 to increase flexibility for DOE to enter into contracts for the purchase of petroleum products, consistent with the requirements and objectives of section 160 of EPCA. These changes ensure that DOE continues to acquire petroleum products in accordance with the competitive principles of the Federal Acquisition Regulations and the DOE Acquisition Regulations, while providing DOE the flexibility to use either fixed-price or index-priced contracts for future petroleum product acquisitions. DOE is proposing these changes because the current acquisition regulations, including the requirement that DOE acquire oil in accordance with the Federal Acquisition Regulations and the requirement to use a price index to set purchase prices, unnecessarily restrict DOE's flexibility to procure petroleum products using fixed price contracts, notwithstanding the fact that there may be circumstances in which a fixed price acquisition would better meet the statutory objectives of EPCA.
Lastly, the proposed rule would add 10 CFR 626.9 to implement 42 U.S.C. 6240(f). This final proposed change has been included because, while the Department has had the statutory authority to suspend previously announced or contracted acquisitions of petroleum products or divert the injection of petroleum products into the SPR when there is a perceived imminent severe energy supply interruption, to date, this authority has not been incorporated into any existing regulations.